Hold harmless language is almost always included in construction contracts in favor of the project owner in case of damages or a loss caused by a contractor or subcontractor's actions, inaction or negligence. This obligation runs parallel to any insurance that the contractors maintain and often the hold harmless obligation provides a mechanism to trigger the contractor’s insurance on behalf of an owner. In particular, if the additional insured obligation fails due to incorrect endorsement language.
The following is an overview of the various types of hold harmless agreements you may encounter in construction contracts, as well as a list of details required for hold harmless risk transfer.
3 Types of Hold Harmless Agreements
Whether a hold harmless agreement is something you should be happy or upset about depends upon its wording and usage. Here’s a breakdown of the three types of hold harmless agreements you may come into contact with, and when they should be utilized as part of your risk management protocols:
1. Broad Form
Party providing indemnification assumes all related liability for the following:
- Contractor’s Own Negligence
- Owner’s Negligence
- Combined Negligence of Contractor & Owner
That’s a lot of indemnity for the other party. In fact, it’s so much, that many jurisdictions restrict the use of broad form hold harmless language altogether. Contractors entering into this type of agreement will want to work with their legal and insurance professionals to mitigate the risk associated with such broad language.
2. Intermediate Form
Party providing indemnification assumes all liability for:
- Its Own Negligence
But does NOT assume liability for accidents caused by the other party’s negligence. It is entirely dependent upon which party was responsible for the accident or negligence.
With this type of hold harmless language, each party assumes liability commensurate with their involvement or negligence regarding an event. Due to its balanced nature, the intermediate form is the gold standard of hold harmless agreements and are among the most popular.
3. Limited Form
Party providing indemnification assumes liability for:
- Accidents & Negligence Only, in a Limited Form
Limited form hold harmless agreements hold the other party harmless to the extent that the indemnifying party is at fault. Degree of fault is calculated as a percentage, and payouts are decided accordingly.
When preparing hold harmless language, be sure to review and include the following:
- Name of Indemnified Party to Be Held Harmless
- Name of Indemnitor; the Party Offering Protection
- Category of Protection Being Provided
- Date Range Wherein Agreement Is to Be Considered Active
Beware: contract language is often subtle and may have a different interpretation in a court of law versus how a lay person would read the language. If you are currently tracking and reviewing these documents in-house, we recommend you work with legal counsel as well as your insurance professionals, to ensure that both legal and insurance considerations are being addressed in unison in the context of the nature of the contract.
How BCS Helps
BCS provides full-service insurance document review for your insurance policies and other contracts. With the BCS App, you can keep track of an unlimited number of certificates of insurance, or you can opt for a complete audit from our in-house experts, to maximize your risk management efforts. Unlike other insurance tracking companies, not only will BCS collect and track your insurance documents, but they’ll also review and correct them.
However broad or limited in scope, your relationship with BCS will include a team of highly trained specialists available to you, offering swift and effective support. Ready to get started? Schedule a demo today.
Topics: Risk Transfer